Yum Brands Admits Mistakes in Chinese Markets

Yum Brands Inc (NYSE: YUM), the operator of KFC and Pizza Hut chains, said its business in China is sliding quickly due to a lack of innovation and mistakes.

The fallout from the toxic chicken scandal and from the bird flu lasted longer than expected in China, where it operates 4,463 fast food restaurants, Yum said. Some of its Chinese suppliers were found late last year to feed chickens with excess antibiotics. A new strain of bird flu hit in China in April, causing local KFC revenues to plunge in the following months.

The company said business had been chilled and it underestimated the challenges and failed to come up with a new menu in China.

Yum posted a 68% year on year drop in Q3 earnings; its revenue from China was down 2%; and same-store sales in China fell 11% from a year earlier, much worse than the 6% analysts had expected.

In the years prior to 2012, Yum saw booming business in China as richer ordinary Chinese flocked to KFC and Pizza Hut restaurants. China accounted for half of its $13.6 billion global revenue and 44% of its operating profits in 2012.

But business has been worsening for a year and there is no clear sign of improvement. Yum warned that it would take longer than expected for its China business to recover.

Yum is stepping up its charm offensive by preparing a marketing campaign aimed at convincing Chinese consumers that their food is safe. Chief executive David Novak told investors the "media blitz" mainly consists of finding employees and chicken suppliers.

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